Mergers and acquisitions are a fact of life in the insurance space. Many in the industry are likely to experience both sides of such transactions at least once. M&A transactions are typically complex and have legal, operational, human capital, and technical implications. Thoughtful planning and careful execution are often necessary to produce the desired economic benefits.
IT is central to any M&A value proposition
Planning must include IT: Any transaction that involves merging operations will have significant technology implications. CIOs need to position themselves front and center as their organizations consider and prioritize transactions.
Matt Daniels, a panelist in Novarica’s recent Insurer Client and Council Member Virtual Panel on M&A, underscored the centrality of CIOs and IT. “I’ve been involved in mergers where IT factors decided whether we moved forward or not. IT concerns can crater a deal.” Even when IT factors don’t make or break a deal, “if the goal is to gain value from a merged entity, value from merged IT operations is a big part of that.”
Novarica’s Chuck Ruzicka noted that inadequate loss reserves would have to be disclosed immediately during due diligence. However, the same level of urgency often isn’t created around technology or IT security issues. Organizations don’t often discuss technological deal-breakers in advance.
The right goals and governance
Another factor for successful M&A is ensuring the right people are involved in the project from the start and that core teams can scale and adapt as needed. A governance organization should sit above those teams to decide who should accomplish what goals and when.
Deciding what goals are “reasonable” can be difficult. A panelist noted that “all roads go back to due diligence. You need that to gauge the size of the task at hand. We had overlapping account numbers at one point. Rectifying that was a big lift. A deal’s uniqueness drives the timeline.” Goals may need adjusting as the project gets underway, which makes adaptable governance all the more important. “There needs to be early recognition that M&A is all about time to value. A clear decision-making governance body that covers all the bases is hugely important.”
When I asked Matt how soon IT should be brought into the decision-making process, he had a clear answer: “By definition, it’s Day Zero because there’s so much potential risk and upside on how well IT components of acquisitions work.”
Transparency, communication, and people
Clear decisions also need clear communication. Chuck Ruzicka noted that “people in a recently acquired company are looking for what’s going to happen. If they don’t hear anything, it’ll create fear, uncertainty, and doubt.” As Matt noted, “the vast majority of assets in M&A are often the people. Even a difficult message delivered with transparency and honesty is much better than a rumor mill.
Translation between the acquirer and acquiree can be a requirement, as the two may use different terms to discuss ostensibly similar things. It’s therefore also important to close the loop on communication and check that what we think we’re saying is what others are hearing.
On a final note, Matt pointed out that there’s no reason to treat IT people differently from anyone else at an insurer. “You can’t have a business strategy without an IT strategy in lockstep, and you have to do the same things to retain key staff whether they’re in IT or another business unit.” After all, Chuck cautioned, treating people differently, whether by business unit or acquired/acquiring company, creates inequity and can lead to consternation. These are factors to consider when developing a strategy for retaining key talent.
For more discussions like this, join us for our next Virtual Panel Discussion on Tuesday, March 30 at 1 PM ET, focusing on key issues for insurer IT organizations arising from insurance technology vendor M&A activities. More details and registration for the session can be found here.
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